Hanwha Group’s insurers are expected to perform better stock-wise this year riding on improved profitability and less exposure to bond risks from higher interest rates.
Stock prices of Hanwha Life Insurance Co. and Hanwha General Insurance Co. are dirt cheap among their peers. Hanwha Life, the second largest, closed Tuesday up 1.1 percent at 6,350 won ($5.52). Its bigger rival Samsung Life finished the same day at 114,000 won. Hanwha General was at 7,160 won while stocks of its peers Dongbu Insurance and Hyundai Marine & Fire Insurance cost 63,600 won and 33,000 won, respectively.
Until 2014, Hanwha General Insurance maintained a loss ratio - the ratio of total losses paid out to policy holders divided by the premium earnings - higher than its peers in the second-tier group. It has brought down its loss ratio to around 85 percent, not far from the top-tier group like Samsung Fire & Marine. An insurance company would be earning equal amount of premium as the amount it owes to the policy holder if the loss ratio is 50 percent. The lower the ratio, the bigger premium it would be earning.
But improved performance has not helped its share price, being as much as 40 percent cheaper in the same stock category in terms of price-to-book ratio (PBR) that compares market value to book value. Its PBR is at 0.7 compared with 1.2 of Dongbu Insurance and 1.1 of Hyundai Fire & Marine. Yet its return on equity (ROE) based on this year’s performance estimate is similar to theirs.
Hanwha Life Insurance Co. would benefit when interest rates go higher following hikes in the U.S. rates because of its preemptive leveraging against the risk.
It reclassified 55 percent of available-for-sale securities to be held until maturity. Bonds held to maturity valuing around 30 trillion won do not have to book losses from interest rate changes.
By Hong Jang-won
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